Rising house prices, student debts and changed expectations from the Millennial generation are changing expectations and the traditional model of home ownership.
The INMAN Connect 2018 conference brought together four new startups in the home ownership space that are rewriting traditional models and creating what’s now being known as the shared equity economy.
“Share equity is as term of new companies and models that are challenging what has always been considered a truth – that you either own or you rent,” said Fabrizio Tiso from Irene Retirement.
Traditional models are based on the idea that a couple – usually married or in a relationship - purchase a property under a shared title, putting up a deposit of 20% and paying down the mortgage with a financial institution until the property is owned outright.
But new shared equity models introduce many variations, allowing for smaller – or no – deposits, co-ownership amongst friends, and even options where the goal is to own or trade a proportion of the property with a third party, such as builder or specialised investment institution.
“The 30 year mortgage as an instrument of home ownership was developed out of the Great Depression,” said Sahil Gupta from Patch Homes. “In most industries, people have the choice of using debt or equity based on the cost of capital. But in housing, this has not been an option until now.”
Here’s a summary of some of the new models now available:
1. Pre-sell your home to fund retirement
Irene Retirement is a new take on the old reverse mortgage concept but based on equity. It allows elderly homeowners to sell their home, yet continue to live in it or receive income from rent. Retirees sell their home to Irene, get cash upfront and never pay property taxes, homeowners insurance, or big-ticket maintenance costs again.
2. Just own a bit
Let’s say a house costs $100,000. (Hah!!) You have a great job and can pay a mortgage (let’s face it, it’s cheaper than rent), but you’re struggling to pull together the deposit. Unison HomeOwnership solves this problem by providing you with half the down payment ($10,000 in our example), but this money is not a loan, it is an investment with the outcome being that Unison own one tenth of the property. When the time comes to sell and you achieve a price of $120,000, you pocket $108,000 and Unison receive $12,000 for their share. Equally, if the price goes down, Unison wear their share of the loss.
3. Converting equity to cash
In a similar vein to Unison, Patch Homes are a finance company that shares a proportion of the property’s ownership and shares in the future appreciation or depreciation of your home’s value. Imagine you own a home (or are paying it off) and want to renovate the kitchen. Rather than increasing your loan amount – and monthly repayments – Patch gives you the option of ‘selling off’ a proportion of your homes equity with Patch recouping their money when you decide to sell.
4. Rent til you buy
You’re a well paid Millennial with a student loan who can afford to rent but can’t scrape together a deposit for a home. With Divvy, you find the home you want to buy, lease it from Divvy and every monthly rental payment builds up your home equity. Divvy claim that if you rent for three years through them, you get a 10% deposit.
Kylie Davis is the Head of Content at CoreLogic. She was a speaker at INMAN Connect 2018 in San Francisco on Robots and Automation.